The China Analyst - September 2011

The China Analyst is a quarterly knowledge tool by The Beijing Axis. In the previous edition of The China Analyst in March this year, we looked at the changing business landscape within China, focusing on certain key industries and outlining the opportunities that can still be found for foreign companies. In this September edition, we shift our focus to China\'s impact on the wider world, and especially on the regions where China\'s presence and influence have been strongest, namely those in the developing world. For more on The Beijing Axis, and to see more publications by The Beijing Axis, please go to www.thebeijingaxis.com

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The China Analyst The Beijing AxisAt the Highest LevelReflecting on the momentous events happening in the world right now and in the last few turbulentyears, it is clear that the world is changing significantly. China is a big part of this change; in fact, its emer-gence has become instrumental to a new era that is affecting every region of the world, yet none moreso than the developing world. China is bringing unprecedented change to Latin America and Africa, anda changing business landscape brings new opportunities. In the last edition of The China Of course this edition also features all the usual sections on Analyst, we looked at the changing Chinas trade and investment, procurement, and regional busi- business landscape within China, ness. And I am also pleased to announce the launching of a focusing on certain key industries new website dedicated to The China Analyst, at www.thebeijin- and outlining the opportunities gaxis.com/tca, where the contents of this and previous editions that can still be found for foreign can be found in an interactive online format. companies. In this edition, we shift our focus to Chinas impact on the I trust our readers will enjoy this edition of The China Analyst, wider world, and especially on and as always we welcome your feedback. the regions where Chinas pres- ence and influence have been Kobus van der Wath strongest, namely the developing Founder & Group Managing Director, The Beijing Axis world. kobus@thebeijingaxis.comAfrica and Latin America have experienced the most signifi- The China Analyst - September 2011cant impact of Chinas newfound engagement with thedeveloping world, an impact which the cover of this maga- Published by The Beijing Axiszine has boldly dubbed a new era. Chinas expanding reach 3806 Central Plazais having a profound impact on Africa. Here, Chinas brandof state-led capitalism is serving to breach a heritage of risk 18 Harbour Roadaversion by foreign investors, and in doing so, contribute to Wanchaieconomic growth in many parts of the continent. As our first Hong Kong, PRClead feature illustrates, by means of an essential exchange ofresources for infrastructure, China is playing a crucial role in Tel: +86 (0)10 6440 2106a new construction boom on the continent. Fax: +86 (0)10 6440 2672 www.thebeijingaxis.comWith a rapidly growing trade and investment relationship Executive Editor Kobus van der Wathin recent years, Chinas business with Latin America has to alarge extent been characterised by an exchange of resources kobus@thebeijingaxis.comfor manufactured goods. Yet as our second lead feature envi- Editor Barry van Wyksions, the relationship is now set to enter a new phase of barryvanwyk@thebeijingaxis.comhigher value added investment and trade, with wide impli-cations for Latin America. Editorial Board Lilian Luca luca@thebeijingaxis.comChina is not the only new player in these developing regions, Cheryl Tanghowever. In our fourth lead feature we outline the trade and cheryl@thebeijingaxis.cominvestment activities in Africa of the other BRICS nations,revealing how the likes of India and Brazil are in their own Javier Cuñatways contributing to the shaping of Africas new business javiercunat@thebeijingaxis.comlandscape. Dirk Kotze dirk@thebeijingaxis.comWith the business that these emerging nations, and espe-cially China, are doing in the developing world, the landscape To view the contents of previous editions of The China Analyst, see Previ-in regions such as Africa and Latin America is changing, and ous Editions on page 55. To subscribe free of charge to The China Analyst, please visit www.thebeijingaxis.com or www.thebeijingaxis.com/tca.opportunities for businesses are doing likewise. This editionof The China Analyst is also about these changes and oppor- For advertising opportunities, please contact Haiwei Huang attunities, and about how Chinas business in the developing haiweihuang@thebeijingaxis.com.world is indeed building a new era.4 The Beijing Axis

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Table of Contents September 2011 6 FEATURES Resources for Infrastructure: Chinas Role in Africas New Business Landscape Chinese companies active in Africa are reshaping the continent’s business landscape, yet at its core the rela- tionship rests on one simple although vital exchange. 10 FEATURES China and Latin America: Untapped Sources of Added Value Trade and investment between China and Latin America have increased ten-fold in the last decade, yet the two regions are now set to enter a new higher value added stage of their relationship. 14 FEATURES Rising Stars: China’s Emerging Construction Machinery Manufacturers Chinas three largest construction machinery manufacturers, XCMG, Sany and Zoomlion, have been success- ful in emerging markets and are aiming to catch up with global leaders in the industry. How did they do it? 18 FEATURES The New Scramble for Africa: Emerging Powers on the Emerging Continent Led by China, the BRICS nations are at the forefront of a new scramble for projects and deals in Africa. Yet apart from China, how are the other four BRICS doing in this new scramble on the continent? 22 MACROECONOMY Macroeconomic Monitor: Chinese Inflation - One of the Biggest Fears of 2011 With inflation having reached 6.5% in July 2011, this edition looks at the Chinese government’s monetary and fiscal policy options to fight a scourge for which Chinas central planners have a legendary fear. 24 NEWS China Business News Highlights Recent headline business stories in China, leading with the business deals following foreign trips by China’s leaders, Chinas power shortage in H1 2011, and Chinas latest construction marvels. 26 TRADE China Trade Roundup A review of China’s trade performance in Jan-Aug 2011, and an overview of Chinas trade in services. 28 PROCUREMENT China Sourcing Strategy: A New Approach to Procurement China procurement is changing, and procurement managers need to adapt to a new opportunity landscape. 32 INVESTMENT China Capital: Inbound/Outbound FDI & Financial Markets Analysis on the latest on FDI in China and OFDI by Chinese firms, and a review of Chinas OFDI approval processes. 36 STRATEGY Mapping China in the Global Contracting Industry In this edition we illustrate the presence of Chinas contractors in different markets of the world. 38 STRATEGY CCC: China Inc.s Leading EPC Contractor A closer look at the corporate strategy of arguably Chinas most internationalised contractor. 41 REGIONS Regional Overview: BRIICS A macro overview of the leading developing economies: Brazil, Russia, India, Indonesia, China and South Africa. 42 REGIONS Regional Focus CHINA-AFRICA China-Africa trade and investment analysis, and the series Chinese Contractors in Africa, featuring CCECC. 44 REGIONS Regional Focus CHINA-AUSTRALIA China-Australia trade and investment analysis, and the series Australia State Watch, featuring Victoria. 46 REGIONS Regional Focus CHINA-LATIN AMERICA China-Latin America trade and investment analysis, and an interview with the Mexican Ambassador to China, Jorge Guajardo. 50 REGIONS Regional Focus CHINA-RUSSIA China-Russia trade and investment analysis, including the series China-Russia Resources Watch. 52 The Beijing Axis News - March-September 2011 The latest The Beijing Axis Group news. 54 EVENTS Upcoming Events A selection of upcoming China and global events focusing on the mining and engineering sectors.Back About The Beijing Axispage Company profile and contact information.

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The China Analyst FeaturesResources for Infrastructure: Chinas Role in Africa’sNew Business LandscapeChinese companies active in Africa are reshaping the continent’s business landscape as part of a complexpartnership that has reignited and vastly expanded ties from a previous era. China’s ways of doing busi-ness in Africa today is different from all those of yesteryear, yet the broad engagement can be under-stood through the prism of one vital exchange: Resources for infrastructure. By Barry van WykI n the 1970s, China’s financing and construction of a 1,870 customers inland are on average 50% higher than the costs km-long railway giving landlocked Zambia access to the of shipping costs in other low-income developing regions. Tanzanian port of Dar es Salaam was a monument toChinese engagement and solidarity with Africa in a previous Yet now a new China with vastly different priorities and stra-era. In a flush of post-colonial exuberance, Africa was under- tegic outlook is back in Africa, where it is instrumental ingoing a construction boom. Drawing on colonial-era plans, Africa’s new construction boom that is reshaping the busi-various schools, hospitals and roads were being built in ness landscape on the continent. In contrast to its piecemealGhana, for example, and in the Democratic Republic of Congo interaction with African countries in previous decades, China(then Zaire), the Inga hydroelectric project was completed in is now comprehensively engaged with almost all of Africa’s 541977 at a cost of USD 260 million, while a 1,100 mile power countries – lending money, providing aid, trading, investing,line to Katanga also saw the light of day. and more than all else: building infrastructure and extracting resources. This over-simplified description of China’s businessYet when the Katanga line was eventually completed in 1982 in Africa goes to the heart of how Africa’s business landscapeat a cost of USD 1 billion, it was four times over the original is changing under the influence of a new superpower hungrybudget. Only 18% of Inga’s hydroelectric capacity and 20% for natural resources and well-suited to provide Africa withof the capacity of the new power lines were ever used, and something it is sorely in need of: infrastructure.the sharp fall in the price of cocoa in 1961 put paid to KwameNkrumah’s construction projects in Ghana. Designed to carry Levels of engagement: Trade and investmentfive million metric tonnes of cargo annually, with a lack of newinvestment, mounting debt, poor management and mainte- The China that built the railway in Africa in the 1970s is anance, moreover, Zambia’s new railway never carried more distant shadow of the China of today that routinely buildsthan 300,000. From being a symbol of a new era of Africa’s railways, roads, ports and other infrastructure in various partsdevelopment, this railway – badly managed and insufficiently of the world. In the 2000s, as the size of China’s economy inmaintained – became emblematic of Africa’s lost construc- quick succession surpassed that of Italy, France, the UK, andtion boom turned to protracted bust. Germany, China’s energy consumption expanded four times faster than expected to 16% of global demand in 2006. WhileInstead of a boom of new steel and concrete, Africa expe- China’s GDP expanded at an annual rate of 10% over 2000-rienced decades of lost growth. In 2008, the World Bank1 2008, its annual demand for industrial raw materials such asestimted that access to the most basic services in Africa steel (16%), aluminium (20%), copper (13%) and nickel (23%)increased only modestly between the early 1990s and the all grew even faster. In the ten years preceding 2008, China’searly 2000s, and only slightly in the last decade. Electricity, consumption of crude oil nearly doubled, and during thefor example, is still available to little more than 20% of Africa’s same period its consumption of copper and iron ore tripledtotal population, and piped water to just 12%. while that of aluminium quadrupled. Between 2000 and 2008, China accounted for two-thirds of the world’s entireCompounding the problem was the fact that Africa was growth in demand for steel and aluminium and virtually alllargely left to its own devices in terms of infrastructure in the growth in global demand for copper and nickel.1990s when both African and donor investment in infrastruc-ture was scaled back relative to other priorities such as child This rapid growth in China’s natural resource use contrib-immunisation and education, partly due to the mistaken uted to a windfall in trade between China and Africa, a majorbelief that private investors would step up to fill the infra- supplier of raw materials. Bilateral trade stood at just overstructure financing gap. As a result, while Africa’s construc- USD 10 billion in 2000, yet in 2010 it breached USD 125 billion,tion sector deteriorated, poor road, rail and harbour infra- exceeding Africa’s trade with any other partner, the closeststructure added 30-40% to the costs of goods traded among ones being the US with around USD 115 billion, France withAfrican countries, and the costs of moving foreign imports to around USD 66 billion, and the UK with around USD 31 billion (see chart on next page). This China-Africa trade pattern basi-1 See ‘Access, Affordability and Alternatives: Modern Infrastructure Servicesin Africa, Africa Infrastructure Country Diagnostic. The International Bank cally encompasses an exchange of a diverse range of Chinesefor Reconstruction and Development, World Bank, Feb. 2008 manufactured goods for African raw materials.6 The Beijing Axis

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Features Features The China AnalystAfricas Major Trade Partners (USD bn, 2000-10) Major Investors in Africa OFDI Flow (USD bn, 2003-09) China UK US France150 France120 2003 US 2004 90 2005 2006 60 UK 2007 2008 30 2009 China 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 5 10 15 20Source: UN Comtrade; The Beijing Axis Analysis Source: OECD Statistical Database; China National Bureau of Stistics; The Beijing Axis AnalysisAlong with the US and emerging economies such as Brazil • Export credits to support national exporters. In 2009,and India, China’s imports from Africa are as expected char- China disbursed USD 29.6 billion in export creditacterised by a disproportionate share of oil and minerals. globallyChina’s trade with Africa has as a result been very lucra- • Natural resources-backed lines of credit, or the ‘Angolative for resource-rich African countries, and these African Mode’, where China’s Exim Bank uses natural resourcecommodity suppliers have become crucial suppliers for exports or preferential access to them as collateral forChina. South Africa is China’s only African trade partner from infrastructure projects and as a means to repay loanswhich it imports substantial amounts of products that are • Mixed credits, where financing packages combinenot resources, while China’s leading suppliers of oil (Angola), concessional and market rate loans, such as a mixtureManganese (South Africa), chromium (South Africa), cobalt of FDI and export credit3(the DRC), and platinum (South Africa) are all African. Laying down a methodology: The Angola ModeChinas annual flow of Outbound Foreign Direct Investment(OFDI) to Africa in recent years is still far in arrears of the US, As China’s engagement with Africa has deepened during theFrance and the UK (see chart above, right). In 2009, China’s last decade, its deals on the continent came to broadly fit aOFDI stock in Africa reached USD 9.3 billion, still marginally mould. As a country that recently emerged from civil war yetbehind that of Switzerland, the Netherlands and far behind that is rich in natural resources and sorely in need of infra-the US, France and the UK (which has the most invested stock structural renewal, Angola has become one of the biggestin Africa, namely USD 61.4 billion). Chinese investment in recipients of Chinese financing for infrastructure projects inAfrica reflects a similar predilection for resource-rich coun- Africa, one of China’s largest trading partners on the conti-tries as is the case with trade, and in 2009 a full 76% of Chinese nent, and a major source of its oil. In 2004 Angola signed aFDI in Africa was concentrated in resource-rich countries. In deal with China that would become emblematic of China’s2009, the main sectors for Chinese OFDI stock in Africa were ‘infrastructure for resources’ relationship with Africa.mining (30%), manufacturing (22%), and construction (16%). Angola received a USD 2 billion loan from a Chinese policyYet while Chinese levels of OFDI in Africa still lag far behind bank, China EximBank, for the development of infrastructure,those of Western countries, China and other emerging part- including electricity generation, telecom expansion, railwayners are following new paths of investing in Africa. Europe rehabilitation and water. As part of the repayment terms forand North America have typically relied on FDI and Official the loan, Angola agreed to supply China with 10,000 barrelsDevelopment Assistance (ODA) in Africa, but emerging of oil per day. In a pattern that would be repeated frequentlypowers such as China are adopting a more holistic approach afterwards, a Chinese construction/engineering companyto broaden their economic relationship with Africa that was awarded contracts for the infrastructure projects, whilecombines trade and investment with development coop- rights for extracting natural resources was afforded to aeration. Thus while developing partners such as China, Chinese oil company.India, South Korea and Brazil are not only engaging withAfrican countries that Western countries have avoided in the 3 Deborah Brautigam, author of ‘The Dragon’s Gift,’ has put China’s totalpast, they are also increasingly using alternative financing purely concessional loans, zero-interest loans and grant commitments tomethods. China in particular uses the following financing Africa at USD 2.1 billion in 2009, while she estimated China’s preferential export credit commitments to Africa for 2007-09 at around USD 2 billionmethods in Africa2: and non-concessional finance at around USD 5 billion annually. In sum, all2 For more detail see ‘African Economic Outlook 2011’, ADB, OECD, UNDP, China’s alternative financial flows to Africa reached an annual average com-UNECA, 2011, p. 112. mitment of USD 7.1 billion over 2007-09. The Beijing Axis 7

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The China Analyst FeaturesInternational Contract Revenue in Africa, Chinas and Rest Chinese contractors have become highly competitiveof Worlds Share (USD mn, 2001-09) bidders for publicly tendered infrastructure projects. A 20072001 7.4% 92.6% survey of 35 Chinese construction companies active in Africa found that around 50% of Chinese projects in Africa were2002 9.9% 90.1% actually won via an international bidding process. The extent China of Chinese contractors success in Africa is illustrated in the2003 11.8% 88.2% fact that in 2001 China’s share of contract revenue in Africa2004 14.7% 85.3% Rest of World was a mere 7.4%, yet by 2009 this had climbed to 36.6% (see chart to the left), making it the dominant player, far ahead of2005 21.4% 78.6% Italy with 15% in second place and France with 10% in third.2006 28.4% 71.6% Africa is now China’s largest market in terms of contract revenue with 41.1%, even more than Asia with 36%. Similar2007 26.9% 73.1% to Chinese trade and investment in Africa, the revenue of2008 42.4% 57.6% Chinese contractors is highly concentrated in a few resource- rich countries. In 2009, the leading six countries (Algeria,2009 36.6% 63.4% Angola, Sudan, Nigeria, Libya and Ethiopia), mostly oil and gas-related economies, accounted for USD 18.1 billion or 71% 0 10,000 20,000 30,000 40,000 50,000 60,000Source: ENR; The Beijing Axis Analysis of China’s total revenue (see chart opposite page).Repaying loans for infrastructure development with natural Chinese contractors in Africa have been most successful inresources is not a new concept. The first reported example of civil infrastructure projects such as transport and construc-such a deal involving China in Africa was actually not 2004 in tion. As stated above, around 50% of Chinese contractorsAngola, but 2001 in the DRC when China provided USD 280 in Africa seem to prefer international bids, yet around 40%million for dam construction and received loan payments were accounted for by grants, concessional loan projects andin oil. After 2004, however, such deals became more widely other mechanisms in which the Chinese government play aused by China in Africa, and also expanded to other resources strong role. The case of Angola, where Chinese commercial,such as bauxite, chromium, and iron ore. It should be noted, investment and contracting activity has been vigorous forhowever, that the Angola mode is not the only mode of almost a decade now, can be held up as an example of theengagement for Chinese companies in Africa, yet they are progression of Chinese contracting over time. The establish-common in countries such as Angola, the DRC and Sudan ment of Angola’s first loan agreement with China Exim Bankwho have only recently emerged from conflict and instability. in March 2004 facilitated the entry of China’s large SOEs into Angola, and in the time since dozens of Chinese contractorsThe process of concluding Angola Mode deals is typically have established operations there.4borne out of intergovernmental agreements that deter-mine the purpose, amount, maturity and interest rate of the Although Chinese contractors typically still focus more onloan, followed by the signing of a loan agreement – often the lower value added part of the construction value chain,concessional in nature – between China Exim Bank and the their ability to undertake construction projects at cheaperborrower. The capital is then disbursed in tranches in terms prices have made them very competitive and, in the caseof project completion, and paid directly to Chinese contrac- of Angola, have broken the monopoly of Portuguese andtors in China, which are selected by Exim Bank and China’s Brazilian contractors. Due to the volume of their needs andMinistry of Commerce and sanctioned by the beneficiary the lack of quality products available for sourcing locally,government. With such a methodology in place, the main Chinese contractors bring most of their workers and mate-Chinese actors in Africa are rials from China (although in Angola some Chinese compa- • Lending agencies: China’s policy banks, China Exim nies have in the last few years begun to set up local factories Bank and China Development Bank through the to produce some industrial inputs). After a few years, mostly China-Africa Development (CAD) Fund private Chinese companies also began entering Angola, • Extractors and builders: Large state-owned enter- largely to subcontract from the larger companies and to set prises and some private ones operating in the extrac- up a procurement chain for providing equipment and mate- tive and construction/engineering industries rials from China. • Other business people: Small to medium-sized Chinese businesses and individual entrepreneurs that Windows of opportunity: Africa’s new business landscape may appear subsequently China is engaging with Africa like no other country has everGetting their hands dirty: Chinese contractors in Africa done before, and in the fundamental exchange of Africa’s resources for Chinese-built infrastructure, China is makingCollectively, these actors are re-shaping Africa’s business 4 For an assessment of the various estimates provided for the numberlandscape, yet none are doing so more obviously than China’s of Chinese state-owned and private companies in Angola, see L Corkin,construction and engineering contractors. Having originally ‘Chinese Construction Companies in Angola: A Local Linkages Perspective,’relied solely on Chinese government-financed projects, p. 17.8 The Beijing Axis

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Features Features The China Analysta significant contribution to addressing a lasting struc- Leading Countries for Chinese Contractor Revenue in Africatural bottleneck in Africa. The ‘infrastructure for resources’ and Number of Chinese Contractors in Country (USD mn, 2009) 22deals it concludes in Africa are unique in the way they lock 6,000African countries into using their resources for infrastruc-ture – revenue never actually comes in, obviating the need 17 5,000for taxation. China is transcending conventional patterns ofengagement of straightforward FDI and ODI, and has insteadfashioned an elaborate system where a strong government 4,000role and alternative financing methods can overcome risk,and the leveraging of China’s own booming constructionindustry can see Chinese contractors building much-needed 3,000civil infrastructure as well as value-adding processing indus- 17tries such as refineries and petro-chemical complexes in 2,000 14 12Africa. 15China is a strong player in Africa both in upstream activi- 1,000 8 6 7 9ties such as exploration and extraction, as well as in down-stream activities such as processing. Chinas demand for 1 1 5 4 0oil and minerals has created a new level of competition for Algeria Angola Sudan Nigeria Libya Ethiopia Congo(B) Egypt DRC BotswanaAfrica’s resources, and has contributed to higher prices, to Source: China Statistical Yearbook 2010; The Beijing Axis Analysisthe benefit of Africa. In countries such as the DRC and Angolawhere previous failed construction booms have formed part more time in Africa they will become more aware of theirof protracted instability, China has undertaken projects own shortcomings and more receptive to the value offeredwhere many other investors have regarded the risk as being by foreign companies with the right knowledge and experi-too high. The sustainability and flexibility of China’s contem- ence. For such foreign companies, the challenge will be toporary engagement in Africa, moreover, should contribute utilise these opportunities in the right industries, at the rightsignificantly to Africa’s current construction boom not being time. China’s increased business in Africa has also createdas forlorn as the previous one, and that would make it a true demand for services essential to doing in business in Africa,new era for Africa. providing new opportunities for banks, law firms, and various other service providers.This is not to say that the impact of China in Africa is flawless,yet this should not be the expectation for something that is These are but a few examples of how China’s ‘infrastructurenot an exercise in altruism. Chinese projects in Africa are in for resources’ engagement is creating new business opportu-essence turnkey projects, in theory fulfilled by contractors nities for foreign firms in Africa. Yet perhaps the best oppor-who then sign off on the engagement, and hence the extent tunity of all is the fact that Africa itself is changing. As China’sof the true lasting value add on the ground in Africa is some- activities in Africa increases, Africa is gradually transformingtimes brought into question by some observers, especially itself from a perennial backwater to a new source of growthsince China exports a significant share of its labour to Africa. with diversifying economies, expanding consumer markets,Yet this could be changing, as we have seen, as Chinese and working infrastructure – making Africa open for businesscompanies seek to establish local manufacturing capabilities like never before.on the continent, in addition to establishing several specialeconomic zones and other forms of skills transfer. Barry van Wyk, Senior Consultant barryvanwyk@thebeijingaxis.comThe strong role played by government-to-government inter-action in Chinese deals in Africa has in practice often meantthat many of Africa’s mineral rights are sold in closed dealsand not in public auctions. Yet the increasing number ofChinese extractive companies and construction/engineeringcontractors in Africa has opened up a vast new opportunitylandscape for foreign companies on the continent, bothin terms of potential partnership and new clientele. Thusin areas where Chinese companies are still comparativelyless adept, such as consulting and industrial design, manyopportunities for partnerships are now open to foreign firms.Chinese firms in Africa still lack a deep understanding of localbusiness as well as cultural and regulatory issues, and hereagain foreign companies with experience in Africa can profit.Foreign companies could also explore joint bids with Chinesecompanies for construction projects. As Chinese firms spend The Beijing Axis 9

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The China Analyst FeaturesChina and Latin America: Untapped Sources of AddedValueBilateral trade between China and Latin America has increased ten-fold in the last decade, preparingthe way for a massive wave of Chinese investment in the region in 2010. While both bilateral trade andinvestment are expected to increase further in the coming years, questions remain on how balancedand sustainable the relationship will be. This article argues that both regions are set to enter a new stageof their relationship that will be characterised by increasing Chinese investments in more value addedindustries and eventually higher value added exports from Latin America. By Javier CuñatO nly ten years ago, upon China’s entry into the World imports and 2% of its total exports (see charts below). Ten Trade Organisation (WTO), China was the world’s years later, trade between China and LatAm amounted to seventh-largest economy, growing at 7.3% y-o-y and USD 179.3 billion, a tenfold increase, with LatAm accountingaccounting for just over a tenth of global economic growth. In for 6.5% of China’s total imports and 5.6% of its total exports;2010, with a global financial crisis still persistent in the United and China accounting for 12.3% of LatAm’s total imports andStates (US) and Europe, China became the world’s second- 12.9% of LatAm’s total exports.largest economy, growing at 9.6% (H1 2011) and contrib-uting one-third to total world GDP growth. The emergence Overall, China is not only more important to LatAm today thanof China as a global economic power has greatly benefited ten years ago and vice versa, but the two regions are progres-the global economy. In China’s phenomenal rise, one thing sively becoming more dependent on each other as importantis clear: as China grows, other countries benefit. As China’s sources of growth compared to other regions, exemplified byexported-oriented economy keeps churning out increasingly the free trade agreements China has signed in recent years withhigher value added goods, other countries can now purchase Chile, Peru and Costa Rica. This trend became more evidentpreviously unattainable products at competitive prices. during the most recent financial crisis, during which China’s stimulus package and unrelenting demand for commoditiesYet this trend has also to varying degrees presented the helped LatAm’s exports to China counterbalance a decreaseregions and countries within China’s trade, investment and in demand from the US and Europe. For its part China foundgeopolitical radar with a number of challenges. Antidumping the perfect partner to serve its own demand, diversifyingand protectionist measures in the US and Europe, labour and its sources of fuel and metals needed to power and build itscommunity issues in Africa, and territorial disputes in Asia economy during the financial crisis and into the future.are just some examples. Latin America (LatAm), with its ownparticularities, is no exception. According to the Economic Commission for LatAm and the Caribbean (ECLAC), China today ranks among LatAm’s topThe relationship trading partners, particularly in countries such as Brazil, Chile, Peru and Argentina, where China accounts for 15%, 24%,When China entered the WTO, annual trade between China 16% and 9%, respectively, of each country’s total exports.and LatAm amounted to USD 14.4 billion, with LatAm Whats more, China is now the largest importer of goods andaccounting for 2.7% of China’s total imports and 2.9% of its services from Brazil and Chile, and the second-largest fromtotal exports; and China accounting for 2.3 % of LatAm’s total Peru, Argentina and Cuba. However, these exports remainChinas Trade with LatAm and the Caribbean (USD bn, Chinas Trade with LatAm and the Caribbean (%, 2001-10)2001-10)100 14% China as % of LatAm Exports China as % of LatAm Imports Exports 12% 80 LatAm as % of China Exports Imports 10% LatAm as % of China Imports 60 8% 6% 40 4% 20 2% 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: UN Comtrade; The Beijing Axis Analysis Source: UN Comtrade; The Beijing Axis Analysis10 The Beijing Axis

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Features Features The China Analystconcentrated in raw materials such as copper, iron ore, and A survey by the China-Brazil Business Council (CBBC) revealedsoybeans, which account for nearly 60% of total exports. that 93% of Chinese investments in Brazil in 2010 were under-Similarly, China’s exports to LatAm are mainly electronic taken by state-owned companies, while 6% were undertakenitems, autoparts, equipment and machinery, and textiles. by companies belonging to provinces, and 1% by private companies. The survey also found that Chinese investmentsIndeed, the trade relationship between China and LatAm in 2010 totalled USD 12.6 billion (slightly higher than ECLAC’sis essentially built on the exchange of natural resources for figures), 82% of which involved mergers and acquisitions.manufactured goods or low value for high value added prod- Sinopec made the largest investment when it acquired a 40%ucts. While this makes a lot of sense from the countries factor stake in the Brazilian operations of Repsol-YPF for USD 7.1endowment and comparative advantage point of view, it also billion (see table on next page). Of Chinas total investmentpresents great challenges for LatAm manufacturers who have commitments in 2010, 95% were concentrated in the areasseen Chinese exports progressively replace their market shares of oil and gas, agribusiness, mining, and ironworks. However,at home, in other LatAm markets, and especially in the US. this trend appears to shifting in 2011, with announced Chinese investments in LatAm and the Caribbean thus far amountingRegarding investment, Chinas FDI stock in LatAm breached to USD 7.13 billion (see chart below), with a stronger focus onUSD 41 billion at the end of 2009, accounting for up to 18% higher value added industries.of total Chinese FDI stock in the world. LatAms investmentstock in China, on the other hand, dwarfs that number, hitting If the figures from 2010 and the announced figures of H1USD 112.6 billion in 2008, or roughly 14% of the total foreign 2011 are any indication, they show that China is becomingcapital absorbed by China. A closer look into the GDP figures increasingly entrenched throughout the region, possiblyfor both regions illustrates that current levels of Chinese FDI marking the start of a new phase of economic relationsin LatAm and the Caribbean are comparatively low. In addi- between China and LatAm which features stronger tradetion, they are mostly concentrated in tax havens such as the links that are accompanied by growing investment in notCayman Islands and British Virgin Islands, which accounted only natural resources, but also manufacturing, infrastruc-for 96.7% of all Chinese FDI into LatAm between 2003 and ture and services. As examples, Huawei, ZTE and Lenovo are2009. Excluding the two tax havens, LatAm only received becoming prominent investors in the telecommunicationsabout USD 126 million in Chinese FDI, or less than 1% of the and electronics sectors, and BYD, Chery and Geely are leadingannual total. Overall, there is Chinese under-investment in all the charge in the auto industry.sectors but especially in higher value added industries. The fundamental challenges facing the China-LatAm relation-2010 - Breakthrough ship are two-fold. Firstly, how to increase and diversify Chinese FDI in the region beyond raw materials to more value addedIn 2010, with an estimated investment of USD 15.25 billion, industries; and secondly how to improve trade by means ofChinas investment in LatAm was more than twice the amount exporting more value added LatAm goods. Both challenges, asit invested in the region in the period 2006–09, namely USD they unfold, will present substantial opportunities for both sides.7 billion. Chinas 9% share of FDI in the region now makesit the third-largest foreign investor in LatAm, trailing only Forever imbalanced? Unlikelythe US and the Netherlands, which accounted for 17% and13%, respectively (see chart below). By country, the main Over the long term, the greatest opportunity but also chal-destinations for Chinese FDI were Brazil, Argentina and Peru, lenge facing Chinese companies in LatAm is successful inte-all of which have established strong trade links with China. gration with the host economies. The model it is presentlyBrazil, China’s BRICS counterpart in the region, was by far the utilising in a number of countries, characterised by the acqui-biggest benefactor of this investment wave, with USD 9.6 sition of natural resource assets, the extraction and low valuebillion in Chinese FDI in 2010. added exports ‘back to China’, and under-developed commu- nity relations, has both a limited political and business shelfOrigin of FDI in LatAm and the Caribbean* (%, 2006-10) Chinas LatAm FDI Destinations by Country* (%, 2010-Q3 2011) USD 864.17 bn USD 112.63 bn USD 15.25 bn USD 7.13 bn100% 100 8% 10% Latin America Others Colombia 80% 80 30% 28% Caribbean Costa Rica Financial Mexico Centres 60 60% 7% Ecuador 10% Netherlands 5% Peru 13% China 4% 40 40% 2% Argentina 10% 9% UK 4% Brazil 5% 3% Japan 4% 20 20% Spain 25% 17% Canada 0 0% 2010 Q1-Q3 2011 US 2006-2009 2010 *Note: Data for 2010 is confirmed investments; data for 2011 is announced investments.Source: ECLAC; The Beijing Axis Analysis Source: ECLAC; The Beijing Axis Analysis The Beijing Axis 11

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Features Features The China Analystgas and mineral resources will remain at the top of Beijing’s challenge but probably one of the best opportunities for theagenda, less value added Chinese investments in LatAm region’s export diversification ambitions.going forward would not make much sense from a globalsupply chain point of view. If trade relations continue to Cross-border opportunities for LatAms exporters do notunfold as they have in the last decade, Chinese manufacturers only exist in the natural resources side of Chinese demandand infrastructure developers will need to integrate LatAm but also in food, beverages, agribusiness, leather and fabrics,in their supply chains in the long run as much as LatAm is plastics, chemicals, pharmaceuticals, machinery and elec-willing to. So expect this trend to intensify. tronics, among other sectors. While market entry strategies may vary greatly - from organic to inorganic growth, fromOver the long term, the greatest opportunity but also chal- JV partnerships to wholly foreign owned enterprises, fromlenge facing LatAm companies seeking to compete in China export development to assembling and/or manufacturing,is to diversify their exports towards more value added prod- from partnering with a local distributor(s) to developingucts. While a significant number of LatAm’s manufactured ones own distribution channels – one thing is clear: ignoringexports compete with products China itself produces, one the Chinese consumption market is neither possible nor wiseshould not forget that China is the world’s second-largest if one aims to remain competitive over the long term.importer of manufactured goods. So from a sectoral andproduct perspective, the challenge is not that there is no Final wordmarket for LatAms manufactured goods in China, but ratheridentifying what the specific products with the greatest If 2010 meant anything for China-LatAm trade and invest-potential are and how to market them effectively. ment relationship, it was change. We are leaving behind a stage in the relationship characterised by booming bilateralThe Chinese market is more complex than any other market trade, few investments and strong unbalances, and enteringof comparable size, and therefore requires an on-the-ground, a new stage characterised by the utilisation of new sourcescustomised and dedicated strategic approach. Even though of added value. This stage will not only be characterised byChina is a large market for a number of products, entering the trade but also by increasing Chinese investments in moreChinese market is not an easy task and profits are usually the value added industries and eventually higher value addedresult of a long-term investment in understanding the Chinese exports from LatAm. If this happens, and we think it will, theculture, the specifics of your market and network building. exchange of natural resources for manufactured goods willJust as one cannot ignore that the emergence of Chinese prove to be not the trend itself but the catalyst and continu-manufacturing companies is disrupting domestic competition ation of a bigger trend. Both regions are set to take stepsin a number of industries in LatAm, and increasingly in more towards a more balanced, sustainable, value added andcapital and technological-intensive products, one cannot mutually beneficial relationship. While Chinese OFDI figuresignore that the Chinese marketplace represents a tremendous for 2010 and H1 2011 provide some hints, it is still uncertainopportunity for international companies. China ranks among which countries, sectors and companies will be the protago-the worlds largest consumers and importers of power gener- nists in the coming decade.ating equipment, aircraft and parts, computers and industrialmachinery, agricultural products, consumer and luxury goods How do LatAm companies look at China and how do Chineseamong a large spectrum of sectors and products. companies look at LatAm? While the challenges involved in business transactions are complex, a change in perceptionBrazilian aircraft company Embraer, along with Mexican will be key as old perceptions have on many occasions beenbread maker Bimbo, are just two examples of successful as unbalanced as the trade and investment relationship.LatAm ventures in the Chinese market. Embraer, which China should not be perceived as a neo-colonial power asopened its first office in Beijing in 2000, continued with the much as LatAm is no one’s backyard. The first, and most prob-construction of a spare parts distribution centre at Beijing ably the biggest, barriers that LatAm companies face whenInternational Airport, and the signing of a joint venture with engaging with China are not that different than what theAviation Industry Corporation of China in 2003. Embraer Chinese face when engaging with LatAm. These are culture,has delivered more than 70 aircraft in China and has already language, protocol, and lack of information, and they impactachieved a 52% share of China’s market for aircraft with up how we understand the opportunities and challenges.to 120 seats in 2009. With two plants in China, Bimbo is apioneer in marketing packaged baked goods in China, espe- Working out the information deficits and bringing the marketcially in Beijing and Tianjin, and is expanding to other cities. realities to the corporate landscape in China and LatAm will further assist and facilitate mutually beneficial and moreDespite such precedents, LatAm’s business presence in China value added trade and investment. Government bodies,is still mainly dominated by the so-called multilatinas, with a industry associations, chambers of commerce, corporatestrong component coming from the natural resources sector, . players and service providers must work in that direction.while LatAms small and medium-sized enterprises lag behindtheir counterparts in terms of presence and market penetra- The rules are changing but the game is just beginning.tion. As LatAm becomes increasingly integrated with China,bringing the region’s small and medium-sized enterprises to Javier Cuñat, General Manager: Beijing Axis Strategythe Chinese market not only represents a major competitive javiercunat@thebeijingaxis.com The Beijing Axis 13

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The China Analyst FeaturesRising Stars: China’s Emerging Construction MachineryManufacturersBuoyed by increasing demand, especially in emerging markets, Chinas construction machinery playershave been actively enhancing their international reach and catching up with their foreign counterparts.China’s three leading companies in this sector are XCMG, Sany, and Zoomlion, and this article outlinesthe different strategies adopted by these rising stars and their global expansion plans. By Ankit KhaitanS tarting from a mere USD 1 billion worth of sales in 1999, Global Market Share of Construction Machinery Industry in China’s construction machinery industry saw a decade Terms of Sales Volume (2002 vs. 2009) of high growth with sales reaching USD 60 billion in North Europe Japan Others China America2010. This phenomenal growth in demand was fuelled byrapid growth in both the developed coastal areas of China 100and more recently, inland areas. In developed areas, the 16%genesis of growth was local governments’ expansion of small 29%cities, while in inland China it was a growing market for infra- 80 10%structure and housing. Currently, for every 1% increase in theurbanisation rate, 13 million people move from rural areas to 4%cities, but this number still lags far behind that of developed 60 28% 13%countries and the global average. The Chinese governmenthas set a clear target of achieving an urbanisation rate of 60%by 2020, indicating that China still has a long way to go in 22%this regard. 40 28%Another key demand driver for construction machinery isthe strong growth in fixed asset investments spurred mostly 20by downstream segments, including infrastructure and 32%property investments. For instance, social housing, though 18%comparatively smaller investments, is significant in construc-tion project volume and substantially increases the need for 0 2002 2009equipment. Additionally, demand from foreign markets has Source: CCMA; Off-Highway Researchalso grown, allowing China’s construction machinery exportsto experience rapid growth in recent years. Together, these comprehensive production lines. In contrast, Zoomlionfactors have bolstered the development of the construction is China’s second-largest, and the world’s tenth-largest,machinery industry in China, making it the world’s fastest- construction machinery manufacturer. It emerged outgrowing and third-largest market and catapulting the three of Changsha Construction Machinery Research Institute,largest players onto the world stage. a leading state-owned research institution focusing on construction machinery, effectively affording it a strongBeginnings competitive advantage.According to a report by Off-Highway Research (a consul- Consolidation and government supporttancy specialising in the research and analysis of interna-tional construction), China’s share of the global construc- Though the industry in China is highly fragmented with overtion machinery market jumped from 18% in 2002 to 32% 900 companies vying for market share, a majority of themin 2009 in terms of sales volume (see chart above, right). only manufacture components or engage in sub-assemblyChina’s three leading pioneers in this regard are Sany Heavy due to the hefty upfront financial investments that areIndustry, Zoomlion and XCMG, which have emerged as the required. In addition, intense competition between boththree dominant manufacturers that together account for domestic and foreign participants as well as rising demandabout 30% of the market in China, larger than the top three for improved and advanced technology have forced smallforeign companies active in China (see chart on next page). operators to either be acquired by more established playersIndeed, these three are now ranked in the top ten in terms of or simply exit the game.sales revenue globally. In fact, the large in-house companies have supplementedOut of these, Sany and XCMG only started operating in the organic growth and scaled up rapidly through consolida-early 1990s but quickly transformed themselves from being tion. In the past decade, Sany has acquired assets from itssingle product machinery companies to ones that boast parent company to expand its capabilities while Zoomlion14 The Beijing Axis

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Features Features The China AnalystApproximate Market Share of Chinas Construction balanced between its two largest segments, concrete andMachinery Industry (2010) crane machinery, contributing 43% and 34% to total revenue, Caterpillar Volvo XCMG Zoomlion respectively, in 2010 (see chart on next page). Komatsu Hitachi XGMA Other Chinese Sany leads the local market for truck mounted concrete Kobelco Sany Heavy Other Foreign pumps and full hydraulic rollers; its production of pump trucks is one of the best in the world. Compared to Zoomlion, it is less diverse and its most important segment, concrete, 10% 9% alone contributes more than 60% of its total sales revenue. 7% Nonetheless, after Sany acquired the excavator and truck 5% crane businesses from its parent, its level of business diver- 4% sification started closing in on Zoomlion’s, with product 32% 1% categories expanding to include concrete machinery, road 11% construction machinery, excavator, pile driving machinery, hoisting machinery and port machinery. 8% 3% 11% XCMG is the world’s largest manufacturer of truck cranes,Source: CCMA which account for most of its total revenue. The comprehen- sive line of products it offers includes construction mobilehas targeted third parties to scale up its product offerings. cranes, crawler cranes, wheel loaders, concrete boom pumps,For example, Zoomlion acquired Hunan Puyuan Construction piling rigs, aerial fire trucks, asphalt pavers and cold millingMachinerys truck crane business and Zhongbiao’s environ- machines.mental and sanitation machinery business in 2003. Over the years, Chinese companies in various industries haveThis consolidation is being further encouraged by the successfully moved up the value chain by offering a widegovernment, who is actively promoting consolidation in range of products and the construction machinery industrythe industry to avoid disorderly competition among local is no different. Foreign companies have historically servedmanufacturers. Furthermore, equipment manufacturing is the Chinese excavator market by leveraging their strongone of the seven strategic emerging industries identified in expertise and precision quality. Yet according to CCMA data,the 12th Five Year Plan that the government will focus on so Chinese companies now control one-third of the global exca-as to foster the development of a sound market environment; vator market, up from 22% in 2006. Such strategic moveshence consolidation will be an ongoing trend in the industry have undeniably boosted their overall competitiveness andgoing forward. Chinese construction machinery manufac- allowed them to capture market share from their foreignturers are also afforded tax breaks and other incentives from competitors in China and in other emerging markets.local Chinese governments, enabling them to take a longterm view of the market rather than just focusing on short Going global – M&A and partnershipterm profits. The global presence of US-based Caterpillar and JapansIt is worth noting that foreign enterprises have had little Komatsu has been strong for decades as they beganopportunity to compete against local competitors in this expanding abroad early on when growth in their domesticconsolidation drive due to regulatory restrictions, and have markets slowed with urbanisation reaching a saturationbeen unable to acquire majority stakes in joint ventures with point. Following a similar strategy, Zoomlion, Sany anddomestic firms. This has allowed local rivals to gather market XCMG have been encouraged to expand into foreign marketsshare from foreign companies and at the same time narrow because of their solid positions in the Chinese market, world-the capability and quality gap by integrating independent class products, sustainable low cost advantage and China’senterprises’ abilities via strategic acquisitions. Moreover, expansive infrastructure projects. Sany in particular has ledforeign enterprises have simply not been able to increase domestic equipment manufacturers in overseas expansion.production fast enough to meet rising demand, diluting theirmarket shares. However, the three differ in their overseas expansion strat- egies. Zoomlion focuses on a direct M&A route to expand,Different specialisations integrating its costs and scaling its position in China while leveraging its target’s distribution network and technicalThe product portfolios of China’s three largest industry players capacities. CIFA, a global manufacturer based in Italy, was amostly overlap, yet there is diversity in their product offerings very strategic acquisition for Zoomlion that strengthened theand this unique characteristic defines some of the dynamics latters R&D capabilities and helped increase its global marketin the industry. Zoomlion has the worlds most diverse range share. In contrast, Sany has preferred to expand by buildingof products including concrete machinery, tower cranes, its own plants in foreign countries. For instance, Sany recentlyroad and earthmoving machinery, environmental sanitation built research and development centres in Brazil (2010) andmachinery, and bulk material transportation equipment. Germany (2009) as part of an ambitious international expan-Despite such a diversified portfolio, revenue sources are sion plan. Also, it is the first Chinese construction machinery The Beijing Axis 15

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The China Analyst FeaturesXCMG, Sany, Zoomlion Revenue Mix Comparison (%, H1 and enter the top five global construction machinery compa-2010) nies. For its part, Sany plans to scale up rapidly to achieve Concrete Excavators Mechanical these numbers as soon as 2012. To accomplish this, Sany is Machinery Scrapers building plants in overseas markets with great potential such Crane Machinery Environmental as Indonesia, North African countries and South Africa, a stra- Machinery Compaction tegic step that will open new channels to market its prod- Road and Piling ucts. Zoomlion is following similar tactics and expanding Machinery Others quickly to acquire brands, technology and distribution100 6% channels, with a keen focus on emerging markets. Similarly, 7% 9% 4% XCMG recently announced the acquisition of two European 12% 3% suppliers, marking its first international acquisitions aimed 20% 3%80 12% at boosting its value chain and extending its technological 10% capabilities in key component production.60 12% 37% China’s three leading construction machinery manufacturers seem well placed to achieve these goals, yet each of them still40 have much potential to improve their technology. To be sure, 69% to enhance their competitive position, Chinese machinery manufacturers are constantly upgrading their technological20 52% 44% capabilities and focusing on technical innovation, but they still have some ground to cover before they start taking on the world leaders. That said, these firms have demonstrated 0 a remarkable ability to incorporate technology and quickly XCMG Sany ZoomlionSource: CCMA; Bloomberg adapt. As a case in point, Sany invented the first 66-metre truck-mounted concrete pump in the world.player to set up factories in India and the US, where it recentlyopened a USD 60 million assembly plant which in August Chinese construction machinery manufacturers are set to2011 started assembling trucks mounted with concrete- become some of the largest beneficiaries of the infrastruc-pumping equipment. XCMG, Chinas largest construction ture boom in emerging markets where competitive prices aremachinery maker, has opted to cooperate with foreign capital key, and with improving technology and evolving interna-and foster close partnerships with overseas dealers. The tional expansion plans, the likes of XCMG, Sany and Zoomliongroup has already established close cooperation with nearly are gearing up for bigger challenges.100 dealers who help sell its products all over the world, butmost notably in emerging markets such as Indonesia, Brazil Ankit Khaitan, Consultantand Russia. ankitkhaitan@thebeijingaxis.comAmong these key differences, there is one commonalitythat exists in the internationalisation strategy of all three ofChina’s major machinery manufacturers - they have beenaggressively marketing their product overseas though newdistributing channels with a core focus on emerging markets,namely Brazil, Russia, India and Africa. Emerging markets aresweet spots for these companies because it is difficult toaccess developed US and European markets where dominantand established players, such as Caterpillar, emphasise theirvalue-added after sales services. Emerging markets, on theother hand, are more price sensitive, and prices of machineryequipment from Chinese manufactures are typically 15-20%below foreign competitors, providing buyers in emergingmarkets with a considerable overall cost saving. Anotherimportant reason is that, like China, these countries areexperiencing a similar urbanisation process and are conse-quently investing a lot towards infrastructure improvement,providing Chinese enterprises a potential market to tap into.Reaching higher: The years aheadXCMG, Zoomlion and Sany have revealed their sales targetsfor the 12th Five Year Plan period (2011-15). XCMG andZoomlion aim to achieve USD 20 billion each in sales by 201516 The Beijing Axis

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The China Analyst FeaturesThe New Scramble For Africa: Emerging Powers on theEmerging ContinentThe BRICS of China, India, Brazil, Russia and South Africa – and China in particular – are at the forefrontof a new scramble for projects and deals in Africa. Each one brings to the continent its own distinct busi-ness nous, yet collectively the BRICS are instrumental in transforming Africa’s business fortunes. Leavingaside China’s dominant position in Africa, this article focuses on the activities of the other BRICS nationson the continent. By guest contributor Charlie PistoriusT he global balance of power is shifting into the hands BRICS Trade Profile (As a % of Country Total, 2009) of the rapidly industrialising emerging growth giants, 60 especially the BRICS block of economies: Brazil, Russia,India, China and South Africa. The BRICs (excluding South 50Africa as the smallest strategic member) are today fuelling Africathe global recovery with their huge demand requirements, 40 Developed Economieshigh growth multiples and vast deployment of capital.Explosive population growth and rapid urbanisation in 30 Emerging Economiesthese economies have engendered a vital demand for food South, Eastand energy security, and an urgent need for capital stock 20 & Southeast Asiabuild-up, in particular transport, power, communication and Latin Americahousing infrastructure. In Africa the emerging BRICS have 10latched onto China’s coattails in seeking commercial favour 0and opportunity, although each with their own individual China India Brazil Russia SA BRICSmodus operandi and business methodology. Yet they all have Source: UNCTAD Statistical Yearbook 2010the same purpose, namely to secure a foothold in Africa’svast and rich resource offerings. But the story is not merely is impressive. Between 2000 to year-end 2009, India origi-one described by an exchange of outgoing raw materials in nated the majority of deals, 812 in all; China managed 450;return for inbound capital, tools and cheap final products. As Russian firms undertook 436 deals; South Africa at least 237;the floodgates for broader and more ingrained partnerships and Brazil 190. For the year 2010 up to the end of May 2011,are opening, so too will Africa’s story change in its balance of China led the way by undertaking 195 new deals, followedtrade and investment. by India with 183, Russia 102, Brazil 51, and South Africa 40, according to UNCTAD’s World Investment Report (2011).The BRICS Way The trade relationship between the emerging economiesThe large BRICS economies (as well as other emerging players and Africa is, however, the one that best defines the scalesuch as South Korea and Turkey), all have the same compara- of their overall commitment and interest on the continent.tive advantage in their outward engagement: they are able Collective bilateral trade between the BRICS and Africa forto access large pools of finance and cash reserves (mostly instance ballooned from a mere USD 24.3 billion in 2000through state incentives and subsidised support), and they to USD 193.4 billion in 2010 - though Chinas share of USDalso uphold a version of the Developmental State Model that 123.3 billion alone makes up 64% of the total. Of Africa’s totalencourages a statist approach to business - explicit in the trade volume with the world, the BRICS collectively accountcase of China - that enables private enterprise and mercan- for an impressive 22%, which hardly measured 10% in 2000.tile commerce, rather than perpetuating poor management Shockingly however, South Africa’s intra-Africa trade onlyapproaches which translates into an unproductive utilisation measured 2.3% of Africa’s global total in 2009, dropping toof strategic assets. 1.5% in 2010 (see chart on next page).As a bloc, the BRICS global outward FDI stock build-up Brazil: Not only Lusophone specialistsincreased substantially from USD 134 billion in 2000 to overUSD 1,085 billion in 2010 – only a small smattering of this To date Brazil’s multinational firms have mostly been involvedwas, however, destined for Africa (roughly 2.7%). Developed in Africa’s construction and upstream exploration andeconomies still provide the largest vested interest of capital energy production. The likes of Petrobras, which is one ofstock in Africa – roughly 40% originates from the European the global oil and gas leaders with 2009 revenues of overeconomies. Since 2000, the majority of BRICS outward invest- USD 118 billion, has staked increasing claims in Africa, espe-ments in Africa has been in cross-border M&A. Considered cially in Nigeria, Senegal and Angola, while also maintainingpurely by this measure, the number of BRICS engagements exploration activity in Mozambique and Tanzania. Brazilian18 The Beijing Axis